x Abu Dhabi, UAESaturday 20 January 2018

Dubai's new energy bodies have work cut out

It was not so long ago that Dubai was habitually referred to, usually by foreign newspapers looking for an appropriate cliche, as the "oil-rich emirate".

It was not so long ago that Dubai was habitually referred to, usually by foreign newspapers looking for an appropriate cliche, as the "oil-rich emirate", but anybody bothering to scratch even gently on that image knew the truth: the emirate's reserves were on the cusp of exhaustion and it faced an imminent energy deficit. Since 1969, when the first crude flowed in Dubai, reserves have been dropping steadily, and unlike Abu Dhabi, no new ones have been found to replace them. In the mid-1990s, the proportion of Dubai's GDP that came from energy was about 35 per cent. Now, it is generally reckoned to be about 5 per cent, and falling.

Dubai's staggering rates of economic growth in the early 21st century prompted soaring levels of demand for energy. You cannot be the "bright light city" of the Gulf if there is not enough energy to keep the lights on. Likewise, it is difficult to be the aquapark playground of the region if there is not enough water to fill the pools, sprinkle the gardens and wash the cars, let alone meet basic daily requirements in an urbanised desert environment.

Dubai's ruler this week recognised the energy challenge with the appointment of two new bodies to oversee long-term energy policy. The Energy Higher council will address the demand side of the energy equation, while a new Department of Petroleum Affairs will look at supply. Both bodies are unified under the chairmanship of Sheikh Ahmed bin Saeed, the head of the Emirates Airline group. The latter is probably the more straightforward task. It is difficult, as ever, to tell from the official figures, but Dubai most likely became a net importer of oil about a decade ago and has had to buy energy on the open market ever since.

Official forecasts opaquely suggest there are another 20 years worth of oil left in Dubai's five oilfields. But that assumes production continues at the present rate, about 240,000 barrels per day, and that it remains economically viable to continue squeezing every last drop from the desert and the Gulf seabed. When oil was priced at nearly US$150 per barrel last summer, Dubai's reserves looked a nice little earner for the emirate. When they hit $35 six months back, the emirate probably reckoned it was better off leaving the stuff in the ground.

With oil creeping back to the $75 level, Dubai's oil industry faces a decision: is it worth producing it for export at that price? In Dubai's current strained financial condition, the answer is an overwhelming "yes". Even such comparatively low production volumes will generate about $6.5 billion (Dh23.87bn) per year for the emirate. That is no insignificant sum for Dubai Inc, with at least $80bn of debt commitments to meet in the medium term.

It is the other side of the energy equation that presents the greater problem, with as many variables as the Grand National racecard. The Energy Higher council will have representatives from DEWA, the emirate's energy authority, as well as the big industrial consumer groups like Dubai Aluminium and Emirates National Oil Company. The macroeconomic issues are pretty clear-cut. In order to resume the double-digit rates of growth of the past decade, Dubai needs access to energy at reliable prices and sustainable quantities.

For oil, it needs probably look no further than the benevolence of Abu Dhabi, but gas is more difficult. The Dolphin pipeline linking Qatar, Abu Dhabi and Dubai looks the most secure source, perhaps topped up by supplies from Iran, although that route brings its own security issues. For Dubai, the great imponderable is the question of alternative energy sources. The emirate has not invested in energy alternatives to the extent of Abu Dhabi, with its Al Masdar project symbolising its commitment. Dubai of course has all the essential raw materials - sun, wind and seawater - but to play catch-up with the capital would require a multibillion-dollar investment probably beyond its current financial capability.

Sheikh Ahmed faces a big challenge. He has been thrust into the role of senior strategist of Dubai's economic recovery. His job at Emirates Airline puts him in charge of one of the emirate's biggest and most success commercial concerns; his chairmanships at the Supreme Fiscal Committee and the Dubai Executive Council give him control of the financial and administrative levers of power. If he can square the Dubai energy conundrum as well, it will be a singular achievement.